Liquidation value and loan pricing

Francesca Barbiero, Glenn Schepens and Jean-David Sigaux

No 2645, Working Paper Series from European Central Bank

Abstract: This paper shows that the liquidation value of collateral depends on the interdependency between borrower and collateral risk. Using transaction-level data on short-term repurchase agreements (repo), we show that borrowers pay a 1.1 to 2.6 basis points premium when their default risk is positively correlated with the risk of the collateral that they pledge. Moreover, we show that borrowers internalize this premium when making their collateral choices. Loan-level credit registry data suggest that the results extend to the corporate loan market as well. JEL Classification: G21, G12, E43

Keywords: collateral choice; liquidation value; money markets (search for similar items in EconPapers)
Date: 2022-02
New Economics Papers: this item is included in nep-ban and nep-cfn
Note: 2609469
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Liquidation Value and Loan Pricing (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20222645

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